The cash flow clinic: It’s about a number of techniques, not one silver bullet

The old adage that “cash is king” has long dominated business speak, and is a reflection of the fact that the majority of business failures aren't because of a bad idea – but are to do with running out of money and having nowhere to go.

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The maiden FD Surgery conference, hosted by Real Business at the Royal College of Surgeons in London, put cash flow front and centre of the debate and invited both business leaders and those involved with the management of the discipline to debate and discuss.

Most often experienced at a small company level, in July 2015 Bacs reported that small and medium-sized businesses were owed some £26.8bn in overdue late payments – with £10.8bn spent per year in attempts to recover overdue payments. Furthermore, an Federation of Small Businesses (FSB) survey of its members in 2014 revealed that 51 per cent had experienced late payment within the previous 12 months.

For Brenda Readman-Bell, group finance and IT director and J Barbour and Sons, she was clear in her feelings. “As far as are concerned, too many wonderful British heritage brands are falling by the wayside because of cash flow problems. For us, as a manufacturer and retailer, with both physical stores and ecommerce, cash flow is very important. As a seasonal business, trade is predominantly in the winter and autumn, but we have to buy stock first.”

She and her team have to control it very carefully, and sometimes traditional methods don’t work. They do experience fluctuations with the market, especially with subsidiaries in the US and Germany. “It’s quite frightening how many brands are hitting headlines as they run into the cash flow wall,” she added.

Barbour operates without external finance, as it is a family business, which puts extra pressure on Readman-Bell. Wanting to take the business forward each year is hard, she revealed. “You may look at the balance sheet and say we have fantastic cash, but then there’s a tidal wave as we have to buy all stock before it’s been sold – it’s hard to keep going.”

Representing the banking side of things, Gaving Maclean, head of cash management and payments, global transaction banking, at Lloyds Bank, said that Barbour and Readman-Bell are typical of 100-odd thousand SMEs his employers provide financing services to.

“What we see is that overdraft funding is flattish and there is high single-digits growth in customer deposits sitting as operational cash in accounts. That’s not seen on the balance sheet, but you do see part of it,” he said.

“It doesn’t fill me with dread what Brenda [Readman-Bell] says, customers are conservative at the moment and perhaps those macro horizon risks are leading to conservatism. That is leading to customers preserving cash flow.”

Maclean an this team at Lloyds talk with clients about generating a little bit more return from operating cash, optimising payables and receivables. He suggested getting into good shape using efficient payment mechanisms, and added it comes down to pushing a number of things along in parallel rather than chasing one silver bullet.

At this point, David Tuck, co-founder and CEO of Chaser was brought into the conversation. Tuck had a lot of experience to call upon, including stints at Fever-Tree, WAYN and idio, to call upon when he set up Chaser in 2013. His business provides services associated with the chasing of invoices, and he began by saying he often observes companies falling foul when it comes to managing the decision to grant credit to customers.

”Very often businesses won’t contemplate that it is a decision, and will just do it on auto pilot. Rather than going through the motions doing it by default, business leaders need to think: is this customer one I can countenance granting credit to.

This is all well and good, he explained, but businesses could potentially have customers which have been trading for years but have never been reassessed.

Tuck revealed he was a “big sceptic” of credit check services, as the information provided is generally only what is publicly available. “In all likelihood they will be abbreviated accounts, and at best you’re talking about out of date info. On the other hand, within your organisations you have a huge pot of information about what is going on at a particular customer’s business.”

The panel closed by asking each speaker for their piece of golden advice (not silver bullet). Readman-Bell advocated making sure everyone was talking to each other. “From those in the factory to those in head office, get everyone together for business briefs – know what the plan is.” This means information is shared across the business, each person is given a buy in.

Maclean said: “You need to get that base data right, that means you can influence working capital or cash flow. Whether it’s buyers, or those managing inventory or accounts receivables, letting them know how they can benefit and influence that cash flow position is key.”

The FD Surgery’s programme also brought together the importance of current affairs keeping FDs up at night, dealing with all-important data, sourcing funding and deciding upon what an FDs next career step might be. Kindly supported by World First, Bupa, Lloyds Bank, Corporate Traveller, Director Bank, FCM Travel Solutions, Webexpenses and Wells Fargo, the event will be culminating with the FDs’ Satisfaction Survey awards. Make sure to visit Real Business later in the day for these results.

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About Author

Hunter Ruthven is the editor of Real Business. He is also the editor of Business Advice, a title focused solely on a section of the business community currently underserved – micro companies. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative.